As the federal judiciary nears the implementation of new legislation stiffening requirements on financial disclosures, a prominent judge is bringing attention to one stock in particular that is causing a conflict-of-interest “nightmare” for many judges – Berkshire Hathaway.
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In a letter last week to the heads of two key judiciary rules committees, U.S. Circuit Judge Ralph Erickson stated many judges invested in Berkshire do not know when a company appearing before them is owned by the conglomerate, led by renowned investor Warren Buffet, until it is too late.
Erickson, who sits on the St. Louis-based 8th U.S. Circuit Court of Appeals, wrote that several judges had brought to his attention a recurring problem with Berkshire that created a “thorny” issue more extensive than just the one large company.
The judges in question, have accumulated “substantial” capital gains from investing in Berkshire, whose stock price rocketed 60% over the last five years, Erickson said. If they had sold those shares, they would be exposed to capital gains taxes.
As a result, Erickson said the judges have avoided doing so, yet have struggled to consistently ensure they are not presiding over cases involving the assorted companies Berkshire owns, creating a “conflict nightmare.”
The difficulty comes in identifying who a company’s ultimate owner is, Erickson explained, as disclosure statement filings must include a parent organization, but not always the zenith of the hierarchy.
For example, Orange Julius of America is owned by International Dairy Queen, a Berkshire subsidiary. Yet Erickson said Orange Julius currently only must disclose IDQ as its parent, not Berkshire.Erickson suggested the U.S. Judicial Conference’s Codes of Conduct Committee make it easier for judges to obtain certificates that would allow them to defer capital gains taxes if they preemptively divest themselves of holdings like Berkshire.
The Administrative Office of the U.S. Courts said the Civil Rules Committee will review Erickson’s proposal over the summer. Its next meeting is on Oct. 12.
Erickson’s letter comes just months after President Joe Biden signed into law the Courthouse Ethics and Transparency Act on May 13, which requires federal judges to more promptly and publicly disclose their stock trades.
The law was prompted by a Wall Street Journal report last year that almost 150 judges had failed to recuse themselves from cases involving companies in which they or their immediate family members owned stock.
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